Editor’s Note: This is round one of Point-Counterpoint, a new blog series that pits two feisty telecom experts against each other in the ultimate industry showdown. Let’s get ready to rumblllllllllllllle!
Americans’ thirst for streaming video and audio content is growing exponentially. Not long ago, one or two gigabytes of data were more than anyone could reasonably need from their phones. But as the options for streaming increase and the quality and speeds improve, the average smartphone user has started to pay close attention to data limits.
T-Mobile was the first major carrier to address data limit concerns with Binge On in November of last year. Binge On allows users to stream video from participating content providers without counting against data caps. Verizon followed in January of this year with a very different approach of getting content to subscribers’ devices: Its FreeBee data program allows content providers to sponsor specific data content so that sponsored data isn’t debited against the end user’s cap. Shortly thereafter, AT&T reintroduced unlimited data plans for customers who also subscribe to DirecTV services, reversing a five-year hiatus on AT&T unlimited data plans and joining several other carriers that offer unlimited data services.
It’s not clear the extent to which these zero-rating programs—or free lanes—benefit customers or are even allowable considering the FCC’s net neutrality rules. In this installment of Market Strategies’ Point-Counterpoint blog series, telecom experts Greg Mishkin and Paul Hartley debate both sides of this issue, demonstrating that there is not one “right” position.
Net neutrality maintains a level playing field
Net neutrality rules were put in place to keep access to the internet open and on a level playing field for all content providers. In theory, ensuring that all providers have equal access to end users will encourage competition, innovation and organic improvement of internet services for all. Net neutrality formally prohibits the creation of “fast lanes,” whereby ISPs make deals with content providers to give “preferred” content faster connections. Fast lanes are troubling because they make it difficult for smaller players to provide bandwidth-heavy content without paying for access to faster connections.
Free lanes are a dangerous, slippery slope
ISPs should not be in the position of picking winners and losers in the content wars. Fast lanes violate this standard. However, free lanes essentially have the same issues. Free lanes value certain types of content and certain providers’ content over others. In the short term, free lanes feel great—they give customers “free” access to content that would normally destroy their data caps. However, in order to access the free lanes, content providers need to abide by the ISP’s rules. It’s much easier for larger content providers with deep pockets to meet ISP-dictated standards than smaller providers with fewer resources. Over time, there is a real risk that the smaller providers will begin to see too many barriers to entry associated with getting onto each ISP’s free lane, ultimately decreasing competition and harming the consumer.
Net neutrality is supposed to assure an open internet for everyone. The latest move towards free lanes can be a dangerous slippery slope, turning the internet into a place where only the richest content providers survive.
So the big question is whether zero-rating programs, such as T-Mobile’s Binge On, run contrary to the net neutrality laws, and as a result have a negative impact on consumers or the industry. Let’s explore both sides of that question…
Service providers are not playing favorites
On net neutrality, the FCC has made the rules very clear—there can be no blocking of lawful content, no unreasonable discrimination or throttling and no paid prioritization. In short, service providers are not allowed to play favorites. But there is nothing in place that prohibits providers from offering free data, so the zero-rating itself is not the contentious issue. Rather, some commentators point to the fact that T-Mobile is adjusting the video resolution as evidence of throttling and is therefore contrary to the ideals of net neutrality.
What does that mean? Well with Binge On, T-Mobile reduces the video resolution to optimize it for smartphone screens. While the change in video quality to 480p (DVD quality) is virtually unnoticeable to a consumer, the optimization allows T-Mobile to significantly reduce network congestion and therefore improve overall customer experience.
But is this really throttling? I would argue that it’s not, purely on the basis of choice. Throttling suggests that the speed or quality is imposed upon consumers, but T-Mobile’s customers have free choice in the matter. They can choose to use the service if they see value in it, or if they don’t (because perhaps they really need to view their cat videos in HD), they can choose to turn it off. There’s no cost or penalty to either choice. To be clear: There is only upside for the consumer here.
Content providers will not be harmed
But what of those poor content providers that my esteemed colleague is wringing his hands over? Well T-Mobile and Verizon have both made it clear that their services are open to all providers at no cost, as long as they can meet the technical requirements. This might raise new fears that these requirements could be so onerous as to exclude many providers, but let’s pause and apply a little logic here. Neither T-Mobile nor Verizon want to promote a service without high-demand content, so they are hardly going to block the way to their own (indirect) success by being restrictive to content providers. Indeed, T-Mobile already has DirecTV and Go90 on the list, services which are owned by its fiercest competitors, so clearly it’s letting anyone in. And let’s face it, if providers are using obscure technologies rather than what the likes of mainstream providers such as Amazon, Netflix and Hulu are commonly using, then they are simply going to have to face up to their own Betamax-reality moment.
Zero-rating makes everyone a winner
Stop for a moment and think about the wireless industry itself. Zero-rating is a direct result of the heightened competition and subsequent innovation that has been injected into the market in the past three years. It is yet another example of carriers looking to provide new services, differentiate themselves and get a competitive edge over the opposition—all to the great benefit of consumers. If the FCC were to regulate it away, it would be going against its own objectives, and while the likes of Verizon or T-Mobile might have all the necessary legal resources to argue their case, smaller players could ultimately give up on providing innovative offerings rather than tangle with the erratic decisions of regulators.
The ideals of net neutrality are to maintain a level playing field, and the FCC seeks to build on this by promoting competition and innovation in the market, thereby providing consumers with increased choice and benefits. Clearly the advent of zero-rating checks all of those boxes, making everyone a winner.
I don’t think throttling is a significant issue here. T-Mobile will have to deal with its customers should users experience problems with it, but T-Mobile should be allowed to provide whatever speeds it chooses as long as it is done uniformly. To me, the real issue is around zero-rating only selected content providers. Both Binge On and Go90 give preferential treatment to its partnered content providers.
Content providers are at the mercy of the ISPs
Paul touches on this but is quick to dismiss the concern because he believes that it would be counterproductive for T-Mobile to restrict content providers. However, this is exactly what happened with the largest video provider in the world, YouTube. YouTube does not want to abide by T-Mobile’s Binge On rules and has decided not to participate in the program. The result is that T-Mobile customers have an incentive to pull content from Binge On partners rather than YouTube, as the partnered content is essentially streamed free.
It is easy to dismiss the YouTube battle as politically motivated, but it demonstrates the foundational issue with free lanes—if a content provider is unable or unwilling to abide by whatever restrictions a carrier demands, that provider will be at a competitive disadvantage to those who have complied.
Is there a compromise?
To be clear, I respect T-Mobile for creating Binge On. I think it is very innovative and pro-customer. It seems that a slight modification to the Binge On model would address the concerns raised here: T-Mobile could offer all streaming video content at a zero-rating rather than only offering it to those providers that agree to its terms.
Go90, however, is a different matter. Verizon has created a closed platform where Verizon is the curator of content that will be zero-rated. Providers that are unable or unwilling to partner with Verizon are at an extreme disadvantage. Some content providers will not have the financial resources to customize their infrastructure to meet multiple carriers’ demands. Others may find that these demands degrade their product. Whatever the reason, net neutrality regulations stipulate that carriers are not allowed to pick winners and losers.
The bottom line is that carriers must treat all content providers the same. If carriers are allowed to hold this power over content providers, competition and innovation will be restricted, and, in the long term, the customer and the entire industry will be harmed.
March 21 update from Paul…
Late last week, YouTube confirmed that it will be a participant in T-Mobile’s Binge On program going forward. Writing on the Google Public Policy blog, Christian Kleinerman, product management director for YouTube pointed out that his organization’s initial issue with Binge On was not the creation of a zero-rating program itself, but instead a need to clarify implementation questions and ensure an optimal experience for YouTube users. More specifically, YouTube wanted clarification on how video services were treated if they opted out of the Binge On program and were also looking for users to be provided with greater clarification and ease of use when switching into or out of the program.
Having raised these issues with T-Mobile, some subsequent modifications to Binge On have been made to improve the transparency of choice, and both parties have found consensus. Kleinerman concludes that “we think these changes, which T-Mobile is making for all users and video providers on a non-preferential basis, can help ensure that the program works well for all users and the entire video ecosystem,” and confirms that YouTube and Google Play Movies & TV are now participating in Binge On. T-Mobile followed up with its own press release, announcing that Binge On now covers video from more than 50 providers, or more than 70% of all video streaming on its wireless network. Interestingly, it also highlights increases in video consumption experienced by both users and content providers since the launch of the service, indicating that far from restricting the content provider industry, T-Mobile’s zero-rating program is facilitating a growth in demand and consumption.
The YouTube case shows how wireless and content providers can work together to provide their users with enhanced products and more choice. Far from being a divisive issue with one party left out in the cold, it is a perfect example of how the providers can collaborate for the common good and why zero-rating programs benefit everyone involved.
Ding, ding…the end of Round One
It is clear that this is an important and complex debate. Maintaining the balance between protecting customers, ISPs and content providers is critical, and the FCC will ultimately decide the rules of engagement. Its decisions will have a long-term impact on the innovative solutions available for the consumer. Let’s keep the debate going! What do you think?
Get ready for Round Two
In May, Paul and Greg will put the gloves back on when they take on consumer privacy and debate the pros and cons of data mining initiatives, such as U-Verse GigaPower’s deep packet inspection. If you have a topic you want us to debate, or if you want to discuss issues that matter to your company, email Greg or Paul.